Cover Oregon: $248 million state exchange to be jettisoned in favor of federal system

Cover Oregon closed one of the sorrier chapters in the history of Oregon state government Friday when it opted to dump its troubled $248 million health insurance exchange in favor of the federal exchange.

The federal exchange doesn't feature many of the bells and whistles Oregon officials had hoped to offer in their in-house system. But the federal exchange works and offers certainty that the Oregon exchange did not.

The Cover Oregon board of directors narrowed their options to two: Continue to pursue the in-house technology with a new primary contractor or go with the federal exchange. Alex Pettit, Oregon's new chief information officer, said continuing to plow ahead with the state technology was too risky and too expensive.

Liz Baxter, chair of the Cover Oregon board, said "I don't know that anyone in the room is excited about going down this path. But I think it's the only option." It will be a less integrated process than initially envisioned. For instance, Medicaid customers may have to go through the Oregon Health Authority while Oregonians buying private insurance will go through the federal exchange.

Pettit said using the federal technology offers the "lowest risk option." The state knows it works, it can be adapted for use in Oregon in time for the November open-enrollment period and moving to the federal technology is affordable.

The portion of the exchange used to enroll people in the Medicaid-funded Oregon Health Plan will be shifted to the Oregon Health Authority, where it will cost an estimated $35 million to complete. Officials said the federal government will pick up 90 percent of that cost, and the rest will be state general fund.

Pettit is a recent hire by the state. He's proven a strong and influential force in the ongoing debate over the fate of Cover Oregon.

It's unclear exactly what this means for Oregonians who obtained health insurance through Cover Oregon. Some, or perhaps all, who did so may have to re-enroll next fall. Until that open-enrollment period that begins in November, there is no need to act and their current insurance remains in place.

The state will still need to hire a systems integrator, or lead contractor, to adapt the federal system. Who that lead contractor is and even what entity within the state lets the contract is unclear. But it appears it won't be the responsibility of Cover Oregon. "This is a statewide priority at this point," Pettit said.

The decision will impact both the existing Cover Oregon customers and its insurance carrier partners. More than 200,000 Oregonians have enrolled, most of them -- about 140,000 -- are Medicaid customers. Cover Oregon enrolled those customers using an alternative manual process it cobbled together after the state exchange proved non-functional.

Cover Oregon has 16 insurance company partners. Most of them already have built their own portals to the federal exchange. But some haven't and have poured considerable resources into customizing their own portal to Oregon's exchange -- the technology that will now be abandoned.

Cover Oregon will have to downsize going forward. Clyde Hamstreet, the private-sector business consultant, said staff reductions will be necessary, though he didn't elaborate or say how many of the 190 employees will be let go. "There's been a lot of criticism of Cover Oregon," he said. "I think it's important we not look at the employees as part of the problem. They are part of the solution."

Cover Oregon has spent about $181 million in its 33-month existence. About 63 percent of went to its information technology contractors like Oracle and Deloitte.

Most of the federal grant money that has funded the operation has been spent.